[USER]

Question for everyone that I feel like I’ve never really understood.. why do people keep so much money in a HYSA over investing it?

When you invest it you get so much better returns even with the capital gains tax.

What am I missing?
I was laid off from my job last year and I simply cashed out some stocks. I’ve never really understood the concept of an emergency fund. Isn’t investing always better?

Yes the market might go down but the big jumps are every decade or so and investing is always better in the long run

[Donna]

I believe it is all about risk tolerance!
Some people to not really trust the stock market!
Historically, it has ups and downs, with an up tranectory.

Similar reason why some people put money in an annuity.

My opinion is that education and studying the history of the stock market helps you trust the system.

Now, I am not above keep some cash stashed in our safe too!

[Tom]

An emergency fund/HYSA is that spare tire in the trunk at 2am went you are miles from home.

It’s 99% peace of mind until you need it, then it’s a lifesaver, when you’ve washed overboard at night in stormy seas.

[Joe]

Being able to take advantage of buy opportunities and having a liquid emergency fund are the two biggest reasons I’m aware of.

Going to read those comments now to see if I can get more edjumacation.

[Christyna]

The HYSA is insurance, not about growth.
By your logic, why do people have car insurance when they can put that money into investments instead?

When thinks go well investing works, but when the isht hits the fan, you are gonna be thankful for the insurance.

[John]

How long have you been alive? It took FIFTEEN years for the stock market to return to its 2000 peak when inflation adjusted.

And if all you own is stocks, and you’re retired, you’re going to have to sell your losses along the way.

[Jonathan]

Bad things can often be highly correlated. Eg a financial crash or tech bubble bursting with 50%+ declines in the market can easily coincide with mass layoffs.

Without meaningful reserves in cash, you may be forced to sell at the worst possible time in order to cover living expenses

[Manuel]

In my personal approach I agree with you. But not one I recommend. Money that is invested in solid ETFs and index funds are always at risk of a 40 to 50% drop.

So, if you have funds that you can’t allow to lose that much value then don’t put it in the “market.”

[Jade]

Waiting for a market correction to buy more. Plus, it’s important always keep money liquid in case of emergencies.

[Leslie]

I’m keeping some in a hysa bc I want to buy a second property in the next 6 months to a year

[Shawn]

I’m guessing the people asking these questions aren’t old enough to have had investments in 2008? The answer is that the market hasn’t had a notable correction in over a decade. This is uncommon.

It breeds complacency. That being said I don’t think there is a genuine need for $50,000 plus emergency funds for normal household expenses.

Obviously if you have a business or significant real estate assets that number would be higher, but those people also have more levers to pull to sell assets or bring in income.

If you have money that you are unlikely to need in a year I would invest it in something liquid that I can still access.

[Licia]

In 2007 I thought I was safe. I had home equity, a 401k, brokerage account and I thought if something happened I could use credit cards briefly until I could access the brokerage.

The stock market tanked but it was more than that. The value of my house plummeted, credit card companies reduced credit limits, my heloc was closed.

Having a nice cushion of cash would have been great for emergencies and for buying low.

[Alison]

I like knowing that I can access it anytime and watching my money grow without doing anything and without minimal risk.

I think of it like a rental property in that we collect “rent” every month but it’s interest without tenant issues.

This is not to put down rental real estate but being a landlord comes with way more risk and downside and is not at all passive.

[Eric]

In 2008 many people were out of work for more than a year and the stock market dropped by 50%. Not a great time to be selling stocks out of necessity.

[Lori]

An pre-tax HSA contribution adds to the max that can be saved pre-tax every year. And it can be invested albeit not in individual stocks.

Agree that with a diversified portfolio you can find something to sell in a pinch at a gain.

Easy access cash is a good thing too.

[Brian]

They’ve studied history and know that we don’t always get continual gains without significant periods of losses.

[Stacy]

Look up sequence of return risks in retirement. I plan to build and maintain a HYSA to help mitigate that risk especially during the early years of retirement.

Probably not as important in the building years but can be helpful in the RE phase.

[Tim]

I’ve never had much in a savings account. I keep it all invested. If I need fast cash & don’t have enough in checking I just pull some from my heloc & pay it back a couple weeks later.

[Albert]

I run a small business and also invest and improve real estate.
It’s good for me to have easily accessible cash that’s earning a smaller percentage that I can access quickly.

It’s kind of like an oversized emergency fund but at least it earns something.

And no penalty for taking it out because the market is down.

[Curtis]

Because cash gives you buying opportunities on dips and sales, without it your not buying Meta at 88$, or Disney at 78$, plus your collecting 2/3 of a normal index fund return and getting paid to wait for deals there’s a reason buffet collects cash also he just increased his position of Nike at 72$ and that stock will be 130$+ in 1-2 years

[Corey]

Because emergencies can’t be scheduled for when the market is up, even if that is the majority of the time. In fact, emergencies like job loss are more likely to occur in a down market.

With that said, as people get more financially free I think they should decrease their emergency fund.

[Author]

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